Lombard banking refers to the business of Italian moneylenders generally referred to as "Lombards" (inmedieval timesNorthern Italy was referred as Lombardy, a much larger region than the modernLombardy). The term was often used in a derogatory sense, as Lombard banking was associated with the sin ofusury.
Lombard lenders became active throughoutWestern Europe in the 13th and 14th centuries, emigrating from major merchant centers inTuscany such asFlorence,Lucca andSiena,[1]: 63 and inNorthern Italy such asMilan orGenoa but also from smaller cities such asAsti inPiedmont.[2]: 134 They often displaced the FrenchCahorsins, even though there is much confusion in documentary sources between the two communities. In some regional contexts, the two words "Lombard" and "Cahorsin" were used interchangeably until the latter gradually fell into disuse from the 14th century.[1][3]
A Catholic prohibition on profit from money without working made most forms of lending sinful.Pope Leo I forbadeusury bycanon law. Even so, it was notper se forbidden to takecollateral on loans.Pawn shops thus could operate on the basis of a contract that fixes in advance the "fine" for not respecting the nominal term of the "interest free" loan, or alternatively, may structure arepurchase agreement by the borrower, where the interest is implicit in the repurchase price. Similar conventions exist in modernIslamic banking. Various ways around the prohibition were devised, so that the lowly pawnshop contractors could bundle their risk and investment for larger undertakings. Christianity, Judaism, and Islam generally ban usury. The necessity of credit for functioning European economies was such that the Church's ban on usury was routinely undermined, "Despite the ban on usury, no medieval European government - municipal, territorial, or national - was able to function without borrowing...But such loans were usually for short terms, often at punitive rates of interest".[4][5]
The prominent position of the Lombards in Christian finance eroded with theProtestant Reformation. In the 18th century many bankers and shipping agents in England wereQuakers. The term "Lombard" for pawnshop (or pawnshop owner) remained in use well into the late 18th century.[citation needed]
In moderncentral banking practice,Lombard credit refers tocentral bank lending against marketable securities, such asgovernment bonds. Modernrepurchase agreements are also forms of Lombard lending: one bank sells marketable securities to another (at a discount), with an agreement to repurchase the securities (typically at par) in a fixed period of time. Although the legal documentation of the transaction is that of a sale and subsequent repurchase, the substance of the transaction is a secured loan (and under most accounting standards, will be treated as a loan).
Modern financial firm names that refer to Lombard banking includeLombard North Central andTS Lombard in the UK as well asLombard Bank inMalta.
Numerous European cities still have a street named Lombard Street after the Lombard bankers who once resided there, as do several American port cities. These includerue des Lombards inParis;Lombard Street, London;Lombard Street (San Francisco);Lombard Street (Baltimore); and similarly named streets in other cities includingAachen,Amiens,Antwerp,Bergen op Zoom,Boston,Brussels,Châlons-en-Champagne,Compiègne,Dublin,Évreux,New Orleans,Nîmes,Philadelphia,Portland, Oregon,Portsmouth, andToronto.
InDutch, the name for a pawn shop is stilllommerd. InUkrainian,Polish andRussian, a pawn shop is similarly calledlombard.